The FBI Estimates That Americans Lose $40 Billion Each Year to Investment Fraud

In 2008, the FBI estimated $40 billion was lost to securities and commodities fraud with losses from seniors totaling as much as $2.6 billion. Also, one in five older Americans say they have experienced financial exploitation or have been targeted by someone trying to defraud them of their hard-earned savings.

Criminals follow the latest market trends and find weaknesses to lure victims. According to the North American Securities Administrator Association (NASAA), senior citizens are the No. 1 target for fraud, while baby boomers are second red rock entertainment investment.

Here are 10 ways how many Americans have become victims of financial frauds:

1. Ponzi Schemes – We are all familiar with the recent case of Bernard Madoff’s multi-billion dollar fraud and 150-year prison sentence. However, these scams continue to trap investors. The Ponzi scheme is a house-of-cards swindle in which high returns are paid to initial investors out of the funds contributed by later investors, who end up losing all or most of their money to the promoter. While some Ponzi investors may have a slight chance of realizing a return on their investment, most investors have from the outset no hope of recovery.

2. Gold Bullion and Currency Scams – The recent increase in gold prices has put gold in the spotlight. Investors should beware of gold bullion scams in which the seller offers to retain “purchased” gold in a “secure vault” and promises to sell the gold for the investor as it gains in value. In many instances the gold does not exist.

3. Natural Resource Investments – With the recent awareness of alternative fuels and peak oil, there is a rise in energy and precious-metals scams promising quick and high returns. Investors anxious to recover losses quickly are likely to be hooked by oil and gas schemes, as well as fraudulent offerings of investments tied to natural gas, wind and solar energy, and the development of new energy-efficient technologies.

4. Life Settlements – While they have helped some people obtain funds for needed for medical expenses, those benefits come at a high price for senior citizens. The rising popularity of these products among investors has prompted a recent congressional investigation.

5. Private Placement Offerings – Beware of private placement offerings under federal registration exemption aka Regulation D, Rule 506. Companies using this exemption can raise an unlimited amount of money without registering the offering with the SEC as long as certain conditions are met.

6. Real Estate Investment Schemes – With many families struggling to keep their homes, scam artists have developed scams disguised as offers to help homeowners caught up in the turbulent housing market “save” their homes or “fix” their mortgages, usually in exchange for a fee paid in advance. Most of these advance-fee offers only generate a quick profit for the con artist and provide no benefit to the consumer.

7. Entertainment Investments – Entertainment investments are unregistered investments. They encompass a variety of products including movies, infomercials, internet gambling and pornography sites, and promise high returns while offering little disclosure of risk.

8. Short-Term Commercial Promissory Notes – Many seniors have lost their life savings by investing in short-term commercial promissory notes that are nine months or less in duration. These notes may be touted as being “insured” or “guaranteed,” but the insurance companies generally are located outside of the United States, are not licensed to do business in the United States, and lack the resources necessary to deliver on the promised guarantees.

9. Speculative Inventions and New Products – New products are for venture capitalists who know how to assess the risks. They are not good investments for your retirement money even though they may
promise high returns.

10. Leveraged Exchange-Traded Funds (ETFs) – Leveraged exchange-traded funds (ETFs) are a relatively new financial product, which is why investors may not be aware of the risks they carry. The funds, which trade throughout the day like a stock, use exotic financial instruments, including options, other derivatives and promise the potential to generate better returns than the market return. Given their volatility, these funds typically are not suitable for most retail investors.

How to Prevent Fraud

The best way to protect yourself is to investigate before you invest. First you should find your state securities regulator, contact them with the name of the person that asked you to invest and give them the name of the offering. Also, look for red flags in the presentation such as promises of “guaranteed” high rate or consistent rate of return on securities that aren’t registered in your state, and also if the person is not properly licensed for the investment opportunity being presented.

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